Economics: Services drive the economy in the third quarter, but without improvement in employment and at an uneven pace by sector
The economy is growing at relatively high rates in the third quarter of 2026, at close to 3.5% year over year according to the IGAE, but the momentum is narrower than the headline suggests. Services, which account for about two thirds of GDP, are the main driver (3.9%), ahead of industry, whose recovery is recent and has not yet offset its earlier weakness. Services growth, however, is concentrated in a few branches: wholesale trade, which is rebounding on a base effect and, most likely, on the import and redistribution of equipment for data centers; and services tied to the World Cup. Both factors are partial and temporary.
Employment tells a different story. While services output is growing by almost 4%, employment in the sector has risen by only 0.5% according to the ENOE, and IMSS-insured workers by 1.5%. The gap has widened to roughly 2.5 percentage points. The branches that generate the most household income, such as restaurants, accommodation, retail trade and business support services, continue to shed staff. IMSS growth is also inflated by the formalization of digital platform workers, whose initial count overstated the number of people with jobs and was later revised lower.
Looking ahead to the fourth quarter, the outlook is one of slowing growth. Momentum has already faded since August, the base of comparison is higher, the wholesale rebound is running out, the World Cup effect has ended, and consumption is weak. With a practically stagnant labor market, household income offers little support. Professional services and business support services deserve close monitoring: they are not volatile branches, so a weakening there would signal a broader loss of strength.
Regarding last week’s indicators, consumer inflation for the first half of October rose to 3.62%, 13 basis points (bp) above the previous fortnight (3.49%). This resulted from an increase in annual non-core inflation to 3.08%, 36 bp higher than in the previous fortnight, and in core inflation, which reached 3.78%, 7 bp higher.
First-half October inflation clearly confirms what earlier reports have stated: it is driven more by the ups and downs of non-core prices than by Banxico’s monetary policy, and core inflation is not fully under the central bank’s control. This casts doubt on a possible cut in the policy rate before the end of the year, as some analyses have speculated. In addition, it was reported that in September 2026 the employed population fell 0.4% year over year. As a result, average annual growth for January–September 2026 was 0.7%, a weak figure equal to that of the whole of the previous year (0.7%). The unemployment rate stood at 2.8%, very similar to the same month of the previous year (3.0%), while the underemployment rate fell to 6.7% from 7.3% in September 2025.
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